Budget 2021: How will it affect you?

On 3 March, Chancellor Rishi Sunak had a difficult task in this Budget: to indicate how he might balance the Government’s books in the future, while still having to pay out huge sums to support the economy.

He said that he would continue to provide ‘whatever it takes’ to protect businesses and jobs during the present crisis, while being honest about the need to ‘fix the public finances’ and setting out his plans to build the future economy.

After spending more than £400bn to mitigate the effects of the pandemic, it was inevitable that Mr Sunak would have to raise taxes somewhere – but he was bound by an election promise not to raise the rates of Income Tax, National Insurance Contributions or VAT during the life of the Parliament.

Despite predictions of Capital Gains Tax changes, it will be Corporation Tax instead that increases, but not until 2023, and after extra tax reliefs have been offered for investment in the meantime. There will also be the less visible effect of freezing personal allowances and other reliefs until 2026, increasing the tax take year by year as inflation pushes more people over the limits.

Measures to mitigate the impact of Coronavirus

The Chancellor began by setting out further measures to provide support for businesses and individuals suffering from the financial effects of the pandemic. The monetary amount of these items, as set out in the Budget forecasts, is far greater than the impact of most tax announcements.

• Extension of the Coronavirus Job Support Scheme (‘furlough payments’) to September 2021 across the UK, with employer contributions to salary from July

• Fourth Self Employment Income Support Scheme grant covering February to April 2021 to claim from late April, similar to first three grants – and newly self-employed people who filed 2019/20 tax returns by 2 March may be eligible to claim for the first time

• Fifth Self Employment Income Support Scheme grant covering May to September to be claimed from late July, varying in amount according to the fall in turnover during the pandemic

• No further support announced for people working as directors through their own personal companies

• 6-month extension of the £20 per week Universal Credit uplift, with an equivalent £500 grant to eligible Working Tax Credit claimants

• Range of ‘Restart’ grants for businesses reopening after lockdown

• Recovery Loan Scheme from 6 April 2021: government to guarantee 80% of eligible loans from £25,000 to £10 million to give lenders confidence to support UK businesses, with some other loan schemes coming to an end on 31 March 2021

• Business rates holiday for eligible retail, hospitality and leisure premises in England continues for first 3 months of 2020/21, followed by a 66% discount for the rest of the year.

• 5% reduced rate of VAT for hospitality and leisure industry extended from 1 April to 30 September 2021, followed by 12.5% intermediate rate to 31 March 2022

Extended reliefs

An extension of Stamp Duty was predicted, and the Chancellor took on board comments from the property sector regarding a cliff edge from 1 April 2021.

• Nil rate of Stamp Duty Land Tax on property transactions up to £500,000 extended from 31 March to 30 June 2021, with £250,000 threshold up to 30 September 2021

• Duties on alcoholic drinks and fuel frozen for the second year running

Changes for the upcoming tax year (2021/22)

• Small increases in main Personal Allowance, Basic Rate Band and National Insurance thresholds confirmed, as already announced

• Lifetime Allowance for tax-advantaged pension funds, Inheritance Tax nil rate band, Capital Gains Tax annual exempt amount, ISA subscription limits all frozen at 2020/21 levels

• No increase in CGT rates announced, contrary to some speculation in advance

• Corporation Tax rate remains 19% until 31 March 2023

• New ‘super-deduction’ for investment by companies: 130% of qualifying expenditure on general plant for two years from 1 April 2021 can be deducted from taxable profit (50% for ‘special rate’ assets, and cars are excluded)

• Trading losses (up to £2 million) for companies and self-employed businesses to be carried back up to 3 years instead of the usual 12 months, making it possible to set current losses against pre-pandemic profits to obtain a repayment

• Cap on Research and Development claims: payable tax credit not to exceed £20,000 plus three times PAYE & NIC liability

• No significant changes announced to ‘off-payroll working’ (IR35) rules, which will apply to large and medium-sized private sector employers from 6 April 2021, as previously announced

Tax measures coming into effect later

• Personal allowances and income tax rate thresholds frozen at 2021/22 levels until the end of 2025/26

• Lifetime Allowance for tax-advantaged pension funds, Inheritance Tax nil rate band and Capital Gains Tax annual exempt amount all frozen at their current levels until the end of 2025/26

• VAT registration threshold fixed at current level of £85,000 until 31 March 2024

• Corporation tax rate on profits over £250,000 to increase to 25% from 1 April 2023, with the current 19% rate applying to profits below £50,000 and a tapering calculation on profits between £50,000 and £250,000

• Establishment of ‘Freeports’ enjoying significant tax breaks announced in 8 areas of England, with further areas to be discussed with devolved administrations

Compliance

The Budget includes several mentions of increased efforts to crack down on avoidance, evasion and non-compliance. The Government intends to invest £180m in additional resources and new technology for HMRC in order to bring in £1.6 billion of additional tax revenue between now and 2025/26.

£100 million will also be invested in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat fraud within COVID-19 support packages. HMRC’s ability to distribute money has been one of the success stories of the pandemic but giving the cash to people who need it has involved taking the risk that the system can be exploited. They are now going to try to find the people who took advantage.

How we can support you

We have created a dedicated Budget Hub which includes our Budget Summary as well as comments from our team.

We will review the new proposals to ensure we offer our clients the best advice to help them remain as tax efficient as possible. And our colleagues at MHA Carpenter Box Financial Advisers are always on hand to help manage investments and pensions in these turbulent times.

For more information, please visit www.carpenterbox.com/budget2021 or call 01903 234094.